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The IRS’s 7 Rules for Alimony

Alimony in Florida is changing.  Luckily, however, the IRS’s federal rules remain the same.  While not terribly complicated, the consequences for incorrectly complying or failing to comply can be harsh, and can also result in bureaucratic tangles.  Further, the ability to deduct alimony payments is an important benefit for alimony payees, an opportunity that vanishes with failure to follow the IRS’s regulations.  Here are the IRS’s seven rules for alimony, each of which must be followed in order for alimony to be tax deductible (and followed continuously, else the IRS reclassify past alimony payments):

  1. Do not let alimony look like child support.

Child support is never tax-deductible, so if the IRS believes your alimony was actually thinly-veiled child support, you will not be able to deduct it.  Although it may seem absurd that alimony could “look like” something else, actions like paying alimony at intervals corresponding with your child’s age or milestones, or agreeing that it shall end when your child comes of age can catch the IRS’s attention.

  1. Do not file a joint tax return.

Though self-explanatory, this requirement is easy to miss, but filing a joint tax return with your spouse means alimony payments cannot be deducted.  Of course, depending on your financial needs and assets, filing a joint tax return may benefit you more than receiving the deductions will.

  1. Do not cohabitate.

Cohabitating ex-spouses cannot deduct alimony payments from taxes.  However, if you were already paying alimony when living together and then separate, the payments made after physical separation may be tax deductible.

  1. Carefully document.

Do not let alimony payments drift into disorganization.  Make payments in accordance with the divorce agreement, document all payments, and ensure the agreement lays out the details of the alimony arrangement and explicitly states that payments will be tax-deductible.

  1. No front-loading.

The IRS prohibits deducting alimony payments made in a front-loaded fashion (that is, paying a large quantity of an alimony obligation in advance).  And if you have done this and are still deducting payments, keep in mind that the IRS may penalize you retroactively after a few years.

  1. Make payments by cash or check.

Alimony paid in the form of physical objects (like vehicles) or in the form of intangible assets (like shares of stock) is not eligible to be tax-deducted.  Paying in this form can also be a risky move, as the value of such items can be disputed and the transfer of them can be more involved.

  1. Explicitly state payments end at the recipient’s death.

It is easy to miss this one, believing that it is obvious that alimony payments would end at the time of the recipient’s death, but the IRS requires it stated outright in order for payments to be deducted.  Note this in your divorce agreement as well.

With your money at stake, do not attempt to navigate these requirements on your own.  At Schwartz | White in Boca Raton, experienced divorce and family law attorneys are ready to assist you with the financial implications of divorce, and can help you take advantage of your rights and privileges under tax and other laws to the fullest extent. Call 561-391-9943 for a consultation today.

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